What is universal life insurance?
Universal life insurance policies are permanent life insurance policies whose cash value growth and cost of insurance are not guaranteed. As a consequence, these products are cheaper than whole life insurance products.
Universal life insurance rates increase yearly in concordance with the ever-increasing age of the insured individual(s). However, as with all types of life insurance, the rates are not affected by the changing health of the insured(s).
The financial demand of universal life insurance policies' increasing rates can be offset or even wholly overcome by the growth of universal life insurance's cash value. Cash value is a cash account built into most permanent life insurance policies. It grows through premium payments and generates interest. Cash value in universal life insurance policies can be withdrawn or borrowed against, and it can serve as equity, meaning that the policyholder can surrender his or her policy in exchange for its cash value.
Universal life insurance is unique in that premium payments go straight into the policy's cash value, rather than meeting a specified, regular charge. Therefore, policyholders may pay as much or as little as they please, whenever they please (subject to certain government-imposed maxima). To collect its fee, the insurance company makes periodic charges against the policy's cash value.
Because premiums are not required on any sort of fixed schedule, it is easier for policyholders to neglect a policy of this type than of any other type of insurance. The policyholder must keep an eye on his or her cash value and keep enough in store to meet the periodic charges which the insurer makes.
The interest rate at which universal life insurance's cash value grows is not fixed. Each policy carries a certain guaranteed minimum rate, but the actual rate of growth can be changed at any time by the insurance company. Because its only guarantee of growth is a very small one, universal life insurance is considerably more expensive than whole life insurance.
